There are few issues that cause more controversy in international trade policy than agriculture. The EU’s overall agriculture policy, including domestic support, tariffs, and Tariff Rate Quotas (TRQs), are an ongoing irritant with trade partners. The UK government has spoken of being more liberal.
This is the context for the UK’s first international trade negotiation since the Brexit vote, to set our future WTO schedules, including calculating our TRQs. There has been optimistic talk from UK Ministers and influential advisers about UK leadership helping renew the impetus for trade liberalisation at the WTO. This process could therefore be an opportunity for the UK to show a liberalising instinct, and a sensitivity towards the differing interests of different countries.
So far the UK is struggling. The proposed approach to assert a new schedule, calculated on the basis of average historical usage of the previous EU TRQs, is seen by agricultural exporters as counter to WTO rules as they would suffer a loss of market access from the loss of flexibility, and failure to account for produce currently crossing borders once inside the EU. Given that all countries have to certify the schedule, a full negotiation will be needed. The EU, who joined the UK in proposing this approach, have now accepted this need. The UK government has sent mixed signals regarding following this lead, but we expect they will need to do so shortly.
The UK needs to find a new more liberal approach in line with Government policy. The UK Withdrawal Agreement may provide a period of time during which unfettered trade with the EU will continue, which should allow continuing single management of the existing TRQs n the short term. The UK should use this extra time to run a domestic consultation process with a Green Paper on agriculture and trade, aiming at an outcome that will deliver liberalisation alongside clarity and reassurance for domestic interests. The evidence suggests that such an outcome is attainable.
In the event that the UK leaves the EU without a deal in March 2019 the UK’s current approach will also not work, given the existing trade between the two, and would definitely require a significant renegotiation by both EU and UK after a short term solution was put in place. Thus the case for the UK taking a fresh look at splitting Tariff Rate Quotas would seem to be overwhelming. It should be fine to admit that the initial approach was optimistic, and that having now considered further we are going to deliver something better.
The Vision for UK Trade Policy at the WTO and with the EU
There is plenty of scope for agricultural trade liberalisation for the EU and UK. The table shows in the 3rd row the difference between the EU and world price of different commodities, with the final row considering a trade-policy scenario in which the UK will lower its external tariff by 50%.
The UK government has high aspirations to be liberal in its future trade policy. As Liam Fox said in his first speech as Secretary of State for International Trade “As we leave the European Union, the United Kingdom will want to play a full part in global trade liberalisation utilising all the tools and arrangements available.”
Shanker Singham, an influential adviser to the UK government, has gone further, in expressing that “We need to operate decisively in the World Trade Organisation (WTO), to galvanise the stalled trading agenda, and to improve economic conditions around the world. As the world’s second largest exporter of services and one of the world’s largest foreign investors and sites of foreign investment, the UK with an independent trade policy will make a difference in WTO councils. If you had to invent a country to galvanise those stalled processes, this is the one you would invent.”
A more sobering assessment was provided by WTO expert Peter Ungphakorn, who suggested that before the UK took up such leadership in the WTO they “might like to look at the many coalitions that already exist and how power is structured in reality in the organisation.”
Many of the countries with the greatest interest in agricultural TRQs at the WTO are also priority countries for new UK bilateral Free Trade Agreements, consultation on which has commenced. The Secretary of State has argued that this means issues in WTO TRQs can be resolved bilaterally “What we said to them is we are opening up the process of a bilateral FTA and it would seem unproductive to have the United Kingdom’s capacity at WTO tied up in a process about TRQ disaggregation rather than be constructively moving to what the future trading relationship would be.” It is unlikely that countries would be persuaded on this basis to back a UK TRQ at the WTO they found to be limiting. It is also yet to be seen whether bilateral FTAs will be possible in the context of the UK’s future trading relationship with the EU.